If John Spedan Lewis were alive today he would probably be sporting a wry smile. To him almost all of today’s hot corporate issues would be old news. Pay inequality? He addressed it in 1905. Engaging employees? He looked into it in 1918. Excessive profits? He wrote about them in 1948. Given his foresight, it is no wonder that the company he established – the John Lewis Partnership – is nowadays much lauded as a better way of doing business. All the more so given that the two principal businesses of the Partnership – John Lewis and Waitrose – have both just spectacularly outperformed the market in their half year results. But is partnership the real source of the group’s success and, if so, what can other retail businesses learn from it?
Partnership is not a panacea
While it is true that a partnership structure is able to smooth some of the rougher edges of capitalism, it does not offer freedom from the rigours of commercialism. Indeed, Spedan Lewis himself was inherently commercial and his thinking on the business model was accompanied by an extensive array of writings, beliefs and rules on how John Lewis should conduct itself in terms of everything from pricing and assortment to customer service. Many of these, such as Never Knowingly Undersold, still apply today and have served the Partnership well down the years.
The lesson here for retailers – and for anyone else looking to employ a partnership style model – is that partnership, in and of itself, is no guarantor of success. It needs to be applied with thought and accompanied by a much wider commercial vision.
Arguably, the reason that the John Lewis Partnership works so well is because of the integrated nature of Spedan Lewis’ thinking which has created a sound balance between the necessity of turning a profit and the desire to do good or appear to be nice. Take the in-house newspaper, the Gazette, for example. This was established in 1918 not just to give Partners something interesting to read, but as a tool to encourage engagement in the business. Readers who can contribute and question management through letters to the Gazette feel involved and that their voices count; in turn this feeling of involvement creates a culture of ownership which leads to better performance; ultimately this drives performance. In many ways, the whole thing is a virtuous circle with no divorce between commercialism and compassion.
Tension and balance
While the JLP model generally works well it would be inaccurate to say that it is perfectly harmonious. Indeed, there is a permanent and necessary tension within the business between the happiness of partners and the pursuit of profit – both of which are key principles.
On occasion the balance of the two has tipped too far to one extreme. In the early to mid 1990s the John Lewis department store business could reasonably be described as one of the less ambitious retailers on the high street. Its stores looked tired; it still refused to open on a Monday; and in some areas its assortment lacked imagination or flair. There was a sense among some that the culture of partnership had made the business sclerotic, cautious and overly bureaucratic. An injection of ambition by newly appointed Chairman Stuart Hampson and others put the business firmly back on track but the medicine was not universally popular and change was often hard won. That position is light years from where John Lewis is today, but it serves as an apt example that partnership is capable of delivering bad business practice as much as any other structure.
Arguably, in today’s highly competitive environment getting the balance right is tougher than ever. In recent years the Partnership has been forced, like any business, to take hard decisions from shutting underperforming shops like Caleys to laying off Partners: both things which attracted mutterings in the Gazette and throughout the business.
There is something of a lesson here in that partnership does not remove the necessity to make hard calls or act in ways that can appear hard or harsh to those affected. However, the larger point is that a partnership structure requires, at all levels, much more effort, thought and care than other business models – and that this needs to be done while attending to day-to-day business.
While the partnership model is not without challenges or problems and is no guarantor of success, it does have distinct advantages.
The first is the impact it has upon service and standards. There is no denying that the sense of ownership partnership confers on individual members gives them reason to perform better. Part of this can be put down to a very simple desire to increase profits which boosts bonuses; but that is far from the whole story. Partnership also helps to generate better sense of job satisfaction: many partners find that being more informed and involved in the business makes their work emotionally fulfilling; many feel that ancillary benefits such as subsidised tickets and holidays and social clubs provides for a good work-life balance. This high level of satisfaction correlates directly to very low staff turnover relative to the rest of retail which means experience, talent and skills are retained in house and play a real role in boosting service levels.
The second is the direct impact on consumers. While not all customers know and understand the workings of JLP, many do. For some this knowledge makes shopping at John Lewis or Waitrose a much more wholesome experience. Fairly or unfairly, trust in corporate Britain is at low ebb; there is a general suspicion of many large retailers and a view that some are out to rip off consumers. The Partnership is not exempt from such feelings and just like others, such as Marks & Spencer, it works hard to behave responsibly and fairly. Its structure, however, is increasingly in tune with the public mood. In an era where views on corporate image play a vital role in decision making about where to shop its partnership approach is becoming a tactical advantage for its brands.
The third is that partnership allows John Lewis and Waitrose some freedom from the short termism that is inherent within companies owned by shareholders. While the Partnership must act commercially and profitably, it is able to take decisions that protect the longer term interests of the business even if these mean some cost to profit over the short term. Last year both Waitrose and John Lewis, for example, chose to invest some margin in keeping prices keen during the consumer downturn; this was not without impact to the bottom line. However, longer term this has paid dividends, helping customer retention and driving loyalty which has resulted, in the latest set of results, in an improvement in both sales and to the bottom line. A public company may well have difficulty in justifying such a stance and, even if it did, it would still be subject to criticism from some quarters. The advantage of being able to have a long range plan without investors buffeting it off course is an invaluable feature of partnership.
In conclusion it would be unfair to attribute the success of John Lewis and Waitrose solely to the fact that they were run as a partnership. Equally, it would be unreasonable to claim that partnership is the only model capable of creating a successful and sustainable retail business. What is true, however, is that the essence of partnership, its spirit if you like, does have a great deal of relevance in today’s retail sector. The partnership structure may not be suitable or even necessary for all retailers but there remains a lot retail management of today could learn by looking back to the foresight of John Spedan Lewis.